"Easy" Money Button - Are You Listening?

The FED seems to have touched their Easy Money Button with the data published
on Thursday. That data for the M3 (20 Feb) showed that this measure of money
supply was up 27.4% (season. adj.) This is the highest rate since 28.8% rate
on Dec. 26, 2005. Are we seeing the FED starting to inflate the money supply
as their data "disappears" from view on March 23?

Even with the money-pumper running at such a clip, the markets are continuing
their range-limited movements. One way to see this is to review the monthly
data chart using our weekly chart model parameters. As we move into early March,
the candlestick bodies have narrowed. This compression will result in a definitive
move out of the pennant-shaped range.

2 Year - Monthly Data - NDX Model

As you can see the monthly NDX chart (above) is overbought and even though
there are other indications that the breakout could be to the upside.

The market is looking for direction and now seems to be pretty much in sync
with the economic factors. I would call this a "compliant" market even though
the economic future is littered with land mines. Bad news is not totally disregarded.
Today's Intel warning hit the semiconductors modestly after a 3.7% rally on
Wednesday.

With the M3 inflation rate at 27%, the FED may be worried about some things
hidden from our view. The supply of dollars may find their way into the stock
markets, but remember,..... they may also be directing that money to the Treasury
market instead!!!!

The 10 year treasury note yield ($tnx) was up 46 basis points today (prices
down) continuing a big rally of 117 basis points this week. This is the highest
yield 4.68% since June '04. Stocks are apparently getting nervous that the
party may be over for low interest rates on the long end.

Rising interest rates will not help the severely waning new home sales and
could generate a more precipitous decline in consumer confidence as those adjustable
rate mortgages kick-in to a higher gear.

Are the Japanese bailing out of the Yen carry trade where they borrow yen
at zero interest rates and buy US bill/notes at 4.5-4.6%? Nice deal if you
can get it. The possibly synchronized US-ECB-Japanese rate hikes may begin
to eat into the free lunch in Japan. Japan's deflation fight may be over.

Strange things are happening around the world in terms of interest rates and
an inflection point may be at hand. Rising long-end rates could hurt stocks
as it draws market money away to those "safer" note/bond returns.

UBS sees the econ slowdown "slowing" and therefore has raised it 1 st quarter
GDP to 4.4% from their prior estimate of 3.6%. That may imply that the FOMC
continues in the rate raising routine.

The semiconductor index (SMH) rose 2.68% on the week, but could not close
above the high of last week and therefore doesn't give us a break-out rosy
picture for the NDX.

The Bank index ($BKX) was down 1.57% for the week and may be telling us that
there is interest rate dangers around the next curve in the financial road.
Bell-weather GE was down fractionally (-0.24%) on the week. The GE chart (below)
doesn't look good.

6 Month - Weekly Data - GE

Our Market Model

6 Month NDX Chart Model

Referring to our weekly chart model, last week I suggested "The chart technicals
are beginning to look a lot like October of 2005 when the year-end rally
began." However, the buy incentive may be simply a trap for the bulls.
Interest rates may be ruling the financial landscape and any buy signal here
would not have the benefit of coming off of extremely oversold.

Trend Compliance

The NASI is still "trend-challenged" and directionless.

6 Month Nasdaq Summation Index ($NYSI)

Ditto from last week; This chart confirms our belief that we are in a consolidation
and trend-less phase. The next trend must be significant to entice us to follow
it. Within such a flat market environment, the possibility of reversals is
high even when a technical indicator crossing signal occurs.

Sentiment

Sentiment is bullish, but not at any extreme where signal turns occur.

This market is very volatile and dangerous for both bulls and bears. Dollar
is at risk. Gold and oil may be ready to move back significantly to the upside
in a rising rate, hard-money and value-"less" dollar environment.

Very Short-term (3-10 days) - Econ data next week includes factory orders
and the monthly Labor Dept. jobs data. The market direction is likely to
be determined by the 10 year note yield moves. It's a day-trading, not
trend trading environment.

Intermediate-term (30-90 days) - A significant move is coming. Possibly
looking at a short term rise from which all indices will be sold. We are
not anywhere near sentiment extremes where our best signals are taken.

Long-term (6-18 months) - Flat to lower. Vulnerable to geo-politics including
Iran's oil bourse, oil prices, N. Korea, Avian Flu, diminished dollar and
possible Asian refusal to buy US Treasuries. My gut says we will be much
lower in October 2006 than we are at this moment.

Listen To What He Says

NAB Luke 4:3-8 And He got into one of the boats, which was Simon's, and asked
him to put out a little way from the land. And He sat down and began teaching
the people from the boat. When He had finished speaking, He said to Simon, "Put
out into the deep water and let down your nets for a catch."

Simon answered and said, "Master, we worked hard all night and caught nothing,
but I will do as You say and let down the nets. When they had done this, they
enclosed a great quantity of fish, and their nets began to break; so they signaled
to their partners in the other boat for them to come and help them. And they
came and filled both of the boats, so that they began to sink.

Paid Subscribers receive mid-week alerts to market
changes that impact our system. The alerts advise of changes in stop level
or signal changes prior to the Friday close of trading.

The Market Listener Trading System - My adaptive
trend following trading system is the result of years of mistakes. I always
seemed to be zigging when I should be zagging. My investing was based too much
on emotion and inputs from so many varied newsletters and methods. After what
has been literally years of personal research into cycles, Elliott Waves, artificial
intelligence and many other systems, I have learned that my own trading
style is best handled by avoiding the "art" of prediction at all costs!!! When
I looked at moving averages for indication of trend direction, it seemed that
they too were always 180 degrees out of phase with what I should have done.
My conclusion, after many losses and much frustration, is that I needed to
keep it very simple and let the market tell me what it wanted to do. In particular,
I wanted to follow the trend, which is your friend, until the market whispered,
or shouted to me that it wanted to change directions. And then, I found
that Stochastics and Rate of Change indicators help me go to cash until the
trend reverses or continues. Thats how my trend following system & its
cash management component developed. I trade Rydex Venture and Velocity funds
by which I can go short (x2) or long (x2) the NDX (NASDAQ 100 Index). I hope
my newsletter and its insights can give you an education on alternative investment
strategies. You might find your own technique or modify mine.

About the Author: Gregory Miller is a registered
Professional Engineer (PE) in the State of Texas. He has been involved in electrical
engineering and projects in the U.S. and some far-flung regions of the world.
Greg has studied the markets for decades and enjoys applying his analytical
abilities and computer number crunching to the science of investing.